Herman Ransom, Director, Office of Multifamily Housing - Hud-Oig

BACKGROUND AND OBJECTIVEPrimeLending, a PlainsCapital Company, is a residential mortgage originator licensed tooriginate and close loans in 50 States and the District of Columbia. As of December 31, 2010, itoperated from 205 locations in 33 States. PrimeLending was approved by the U. S. Departmentof Housing and Urban Development (HUD) to originate Federal Housing Administration (FHA)-approved mortgage loans on February 13, 1990. It primarily originates single-family residentialloans to customers in its 205 offices. After originating loans, PrimeLending sells the loans onthe secondary market; thus, it does not service the loans.HUD’s direct endorsement program simplified the process for obtaining FHA mortgageinsurance by allowing lenders to underwrite and close the mortgage loan without prior HUDreview or approval. PrimeLending was responsible for complying with all applicable HUD-FHAregulations and was required to evaluate the borrower’s ability and willingness to repay themortgage debt. It was protected against loss from default by FHA’s Mutual Mortgage InsuranceFund, which is funded by borrowers’ premiums. FHA’s mortgage insurance programs help lowandmoderate-income families become homeowners by lowering some of the costs of theirmortgage loans. FHA mortgage insurance also encourages lenders to approve mortgages forotherwise creditworthy borrowers who might not be able to meet conventional underwritingrequirements by protecting the lender against loss from default.According to HUD’s Neighborhood Watch system, 2 from May 1, 2009, to April 20, 2011,PrimeLending originated a total of 8,559 FHA loans in the Houston, Dallas, and Fort Worthareas. During the same period, 134 of the loans with a total origination value of more than $15million defaulted within the first year. 3Our objective was to determine whether PrimeLending followed HUD-FHA loan originationrequirements for loans endorsed between April 1, 2009, and May 31, 2011.23Neighborhood Watch refers to a Web-based software application that displays loan performance data forlenders and appraisers using FHA insured single family loan information. The system is designed to highlightexceptions so that potential problems are readily identifiable.HUD defines a default as the inability to make timely monthly mortgage payments or otherwise comply withmortgage terms. A loan is considered in default when no payment has been made 30 days after the due date.Once a loan is in default, the lender may exercise legal rights defined in the contract to begin foreclosureproceedings.4